BDO Stoy Hayward Survey: Small Quoted Companies Feel Private Equity Has More to Offer

December 16, 2008

According to a recent survey by BDO Stoy Hayward (which is the British member firm of BDO International, the fifth largest accountancy services firm in the world), smaller quoted companies (SQCs for the uninitiated) feel that private equity has more to offer than the public markets. This sentiment derives from that most SQCs (69% of them) feel the stockmarkets undervalue their business when listed.

66% of SQCs surveyed believe that the private equity funding model is better than the public markets as it incentivizes management and 67% feel that PE is better at understanding smaller companies. Moreover, 49% of SQCs said private equity would be better than the capital markets at investing for growth and acquisitions.  Most importantly for dealmakers, 32% of those SQCs surveyed stated they were fairly/very likely to consider a public-to-private deal within the next few years, while 48% of institutional shareholders expect to encourage management teams to seek private equity funding for a public-to-private deal.

The survey included smaller quoted companies with a market cap of up to £250m.


Karsten Langer of Riverside on the Effects of the Credit Crunch

December 8, 2008

Here’s a nice interview from the folks over at AltAssets with Karsten Langer, the head of origination for the Riverside Companies’ European operations. The Riverside Company is one of the premiere global PE firms, all the more impressive as they’ve built their worldwide reputation through an amazing track record in small and lower-mid cap deals. Riverside has been extremely active in 2008, with 11 deals done to date (Langer points out that this is a record high for them). As I’m a big proponent of European Small and Mid-Cap deals, I always follow this firm closely. I’ve pulled one part of the Q&A out that I thought especially relevant:

What do companies need to do to attract financing from a private equity house in this environment?

‘Essentially, the basics have not changed. Entrepreneurs and management need to focus on their business plan and adjust it as the markets they are operating in evolve. When you are in a sector such as financial services, consumer or healthcare, the services of your sector will be important and needed, no matter whether you are in an upcycle or downcycle. Companies just need to remain focused on their business plan and really understand their markets, clients and suppliers.’

Q3 2008 Small-Cap Private Equity Report

December 5, 2008

According to a new report by GF Data Resources, a proprietary database that collects detailed data on private-equity transactions valued between $10 million and $250 million, small and middle market deal activity slowed slightly in Q3, but the full impact of the economic meltdown and credit squeeze has yet to be seen in the aggregate numbers. The 104 firms that contributed to the report completed 20 deals in the third quarter 2008, in line with the 42 deals that were completed in the first half of 2008.  These firms completed 133 transactions in all of 2007.

Points of interest from the report include: The primary valuation metric – Total Enterprise Value as a multiple of adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (TEV/EBITDA) – averaged 6.1x for the third quarter, up from 5.7x for the first half of 2008 and 5.8x in the second half of 2007. In the year following the onset of the credit crunch the numbers stabilized, but Q3 saw an uptick.

GFDR identified a number of emerging signs of a more difficult borrowing environment for business acquirers in the middle market:

– Senior debt – essentially, borrowing from bank lenders — declined as a multiple of cash flow from 3.1x adjusted EBITDA in the first six months of 2007 to 2.5x in 3Q ‘08.  Total debt – which also includes subordinated debt and other forms of junior capital – declined from 3.9x to 3.3x.

– With less available debt, buyers needed to increase their equity contributions — equity accounted for 49.2% of the average capital structure, a rise of nearly 10 percent from 39.5% in the first half of last year.

– As is often the case when bank lenders retreat and business sellers have not yet revised their expectations about value, subordinated debt providers began to play a more pivotal role in the market place. The percentage of deals utilizing subordinated debt increased over the past year from 45.2% in the first half of ’07 to 50.0% in 3Q ’08.

– Initial pricing on senior debt jumped from 6.6% in the first half of this year to 7.4% in 3Q.  This, however, preceded steady declines in lending benchmark rates since September 30.

The summary for your reading pleasure:

Small and Lower Mid-Market Private Equity Report for Q2 2008

September 4, 2008

The folks at GF Data Resources have released their quarterly report analyzing deals valued between $10M and $250M.  Overall the firms they contacted reported 23 such transactions fitting their criteria, up from 14 in the first quarter.  However that total of 37 for the first half of 2008 is off from 65 in the first half of 2007, and 48 in the second half of last year.

The report shows a drop in average valuation multiples from 6.3x to 5.7x which is evident by the debt to EBITDA ratio declining from 4.0x in the first half of 2007 to an average of 3.5x since then.  Equity is now taking up a greater share of capital coming in at 41.6% compared with 39.3% a year ago (which is actually not as big a bump as I had anticipated reading).  Additionally, there’s proof that the oft spoken of “Flight to Quality” is actually happening.